The Armchair QB In His Own Words

November 7, 2011

When I wrote about Bill Clinton's new book, "Back to Work," and its veiled critiques of the sitting Democratic president earlier today, I relied on published reports of the tome. I now have it in hand, having fought to the front of a line of white working class voters that was queuing up in Washington, desperate for the fresh wisdom of their hero. (Just kidding -- there aren't really any white working class voters in Washington.)

I figured it was only fair to detail Clinton's take on the three points that my earlier post chided him on -- his acquiescence to the end of Glass-Steagall wall between investment banking and commercial banking, his appointees' opposition to Brooksley Born's attempts to regulative financial derivatives, and his 1997 deal to lower the capital gains rate, to 20 percent from the 28 percent rate that Reagan had set in 1986.

1. On Glass-Steagall, Clinton is utterly unapologetic.

"By the time Glass-Steagall was repealed, Federal Reserve rulings, beginning in the late 1980s, had already eliminated restraints on big banks' ability to engage in both commercial and investment banking activities, except for restrictions on underwriting insurance. The real problem was that both before and after I signed the bill, the Securities and Exchange Commission, which oversees investment banks, lacked the authority to require investment banks to set aside more cash to cover high-risk investments (thought here were other steps a vigorous SEC commissioner could have taken to reduce the risk of a crash) and the bank regulators didn't do enough to limit commercial banks' risky loans...The best argument against repealing Glass Steagall is that it may have accelerated the speed of bank consolidations which were already well underway, encouraging banks to get bigger, faster. Some believe that big banks are less inclined to make small-business loans than community banks."

So because consolidation was already underway, a major move to greatly ease further consolidation was okay?

2. On the failure to regulate derivatives, Clinton admits it was a mistake but downplays his own responsibility, even though it was his appointees -- notably Bob Rubin and Larry Summers -- who led the way, along with Republicans like Phil Gramm, in beating back Born's proposal.

I do think I can be fairly criticized for not making a bigger public issue out of the need to regulate financial derivatives. I couldn't have done anything about it, because the Republican Congress was hostile to all regulations, going so far as to threaten to leave the SEC with no budget because the commissioner, Arthur Levitt, was vigilant in doing his job. But I should have spoken out more, especially after Congress included a measure barring financial derivatives from being regulated as securities or commodities in an appropriations bill that passed by a veto-proof majority. In not doing, I ignored one of my own rules: even when you can't win, it's best to caught trying. Brooksley Born, head of the Commodity Futures Trading Commission, did say that that financial derivatives should be subject to teh same kinds of capital and transparency requirements as agricultural derivatives...After I left office, the unregulated financial derivatives markets increased sevenfold in just seven years, to $700 trillion, including teh newly invented vehicles that contributed to the crash."

3. On capital gains taxes, Clinton is very hard to pin down in the book. Unless I missed it -- the book has no index, so it's hard to know for sure without reading it in full -- he does not address his '97 deal to lower the capital gains rate, which economists say was a major factor in today's gaping income inequality gap, given that the vast majority of capital gains accrue to the very wealthiest. He refers often to the fact that he raised marginal tax rates for ordinary income, and he urges a return to those rates. He also notes that the Congressional Progressive Caucus has proposed, as part of its plan to balance the budget, equalizing the capital gains and regular income rates -- that is, reversing what Clinton had done in 1997. He seems to endorse the progressives' overall plan, but then notes, "of course, in this Congress, progressives don't have the votes to pass their plan." No, they don't. And they certainly haven't been helped by a certain someone who's been out there telling Newsmax -- en route to an ad produced by Karl Rove's Crossroads group -- that he's ambivalent about raising taxes on the wealthy.